The Hard Truth About Residential Real Estate

Anyone who believes that housing is on the rebound, and that now is the time to buy, should take a very hard look at the numbers I dredged up for my spring lecture and luncheon tour.

There are 140 million personal residences in the US. Today, there are 26 million homes either directly or indirectly for sale.

According to a survey by Zillow.com, a real estate appraisal website, 20 million homeowners plan to sell on any improvement in prices.

Add to that 4 million existing homes now on the market, 1 million new homes flogged by companies like Lennar (LEN) and Pulte Homes (PHM), and 1 million bank owned properties.

Another 8 million mortgage owners are late on their payments and are on the verge of foreclosure, bringing the total overhang to 34 million homes.

Now, let’s look at the buy side.

There are 35 million who are underwater on their mortgages and aren’t buying homes anytime soon, nor are the 35 million unemployed and underemployed. That knocks out 50% of the potential buyers.

Here is where it gets really interesting. There are 80 million baby boomers retiring at the rate of 10,000 a day. Assuming that they downsize over time from an average 2,500 sq ft. home to a 1,000 sq. ft. condo, and eventually to a 100 sq. ft. assisted living facility, the total shrinkage in demand is 4.3 billion sq.ft. per year, or 1.7 million average sized homes.

That amounts to a shrinkage of aggregate demand for a city the size of San Francisco, every year. You can argue that the following Gen-Xer’s are going to take up the slack, but there are only 65 million of them with a much lower standard of living than their parents.

Throw in the disappearance of state and federal first time buyer tax credit. You can count on a jump in long term capital gains taxes and state and local property taxes, further diminishing property’s appeal.

If you are looking for a final stick to break the camel’s back, how about eliminating, or substantially reducing the home mortgage interest deduction?

Add it all up, and there is a massive structural imbalance in residential real estate that will take at least a decade more to unwind. We could be looking at a replay of the same 26 year period from 1929 to 1955 when prices remained flat, and we are only 3 years into it!

A second down leg in the real estate market seems a no brainer to me, as is the secondary banking crisis that follows. Perhaps that’s why hedge funds have been big sellers of the homebuilder’s ETF (XHB).

What’s a poor homeowner to do? Don’t ask me. I sold everything in 2005 when my research threw up these numbers, and have been happily renting ever since. And, if the toilet blocks up, I just call the landlord.

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Imagine a man is walking down the street, and suddenly shot in the stomach by the driver of a passing car. Out of the blue a doctor races to where you are and proceeds to aid you, comfort you, and assure you that help is on the way. As you feel the life leaving your body you come to realize that help will not arrive in time and the doctor is actually the man that shot you.
We are being deceived by the very people that caused this.The worst has not arrived yet and Americans need to prepare as best they can for some serious hard times to come.The crisis in Greece is just a prelude to what could happen in the U.S.
Gear up folks, it’s gonna be tough.

You mean sitting around the keyboard bitching to strangers on an anonymous internet massage board is not effective? If only those greedy taxpayers would turn the other financial cheek and take one for the team…………

Solution: vote all the bastards out of office and demand term limits for all of congress. Put strict limits on the budget, put all government employees on the social security system, force all illegals to get legal or go back home, get rid of the IRS and replace it with a sales tax at the end point of purchase…that way EVERYBODY pays… those who want to buy more stuff… pay more taxes. Everyone on welfare is also going to school to learn a trade that will support them and their families so they can become productive, responsible people with a better self esteem for themselves so they can get off of welfare!

This takes courage and sacrifice. We need to get leaders into offices all over this land who are true servants and committed to the process above.

As long as public elections are financed by private donations, elected officials will remain beholden to their big money benefactors and dismissive of the people.Â Nothing of significance willÂ improve until this changes.

@ MDF
I agree with ‘alanisimus’ approach by voting out the corrupt career politicians from both parties. And support candidates that pledge to cut government size & spending, along with some type of flat-tax or universal sales tax.

@ sanityjones
I email my Congressional leaders constantly with nothing more than the usual generic response.Vote out the old, vote in the new.
If that don’t work,eventually millions of hungry, angry, unemployed Americans will probably kick it up a notch.Hope we still have time to turn this economic debacle around before anÂ ” LA riot ” type event occurs. It could get ugly very quickly.One more reason to gear up.

Wheedle,
I totally agree in principle, however the reality of the situation is that this country will continue to follow the (failing) European model for social, economic, and political order. I do not believe there are enough seats up for grabs this Nov. to facilitate the necessary changes in a time frame sufficient to overcome the damages done to America thus far. The road to recovery is far to strenuous, requires too much work, sacrifice, and restraint to appeal to the majority of voters. Take Ron Paul and the end the FED bill as an example. The “majority” of politicians, voters, pundits, etc were supportive of this legislation………..yet it went nowhere. The truth will set us free, but there is a price……..that is the problem; no one is truly willing to pay. The residential real estate market, as big a fiasco as it is, is merely one page of an epic financial drama and the cold facts of history dictate that millions of hungry, angry, unemployed people will give up anything/everything seeking political solutions in the form of comfort and security; ultimately receiving nothing more than death at the hands of their oppressors. Those who will stand in honor against the system, fighting for Truth, Justice, and Liberty are few, and it is in the hands of these few that our future truly lies.

@ sanityjones
Granted many Americans are still oblivious to a crisis.And the system has been burdened for years with the growing number of people being added to entitlement programs.Growing unemployment, combined with working Americans becoming more frugal with their spending, has stalled the economy. And I believe the ‘ Powers That Be ‘ are not prepared for a system crash and civil unrest. They are simply doing what they think is necessary to prop up the system to give “them” the opportunity to prepare.Like many I was hoping that our government would do the right thing, but it would appear they knew this was going to happen.They just didn’t think it would happen in their lifetime.
With that said, our country’s demise may be inevitable. Empty stomachs may decide what happens next.

If voting really changed things, it would be made illegal. They may let you sway things on very, very minor issues, but as far as what is really important? C’mon….do any of you really believe that freaking voting is going to change the course of events? On National policy issues towards Immigration, War, Taxes, Deficits, Criminal Justice, Welfare, etc.? Please….”They” do whatever they want because they can. You have no voice. Nothing will change until it all hits the wall. Period. Then it will get worse…….for us.

Scab is right; it will not change until it all hits the wall.Â Through this whole ‘economic disaster’ period my biggest fear has been that it would not get bad enough to wake people up.Â That would mean that people return to the ‘party’ right after the hangover went away, when they really should stop drinking.Â

Term limits make no sense. Whomever is elected, unless they are saintly, will just sit for one term, get paid off, do their damage then leave.Â The world is has a shortage of saints at the moment.
Â

How can the FederalÂ governmentÂ be repaired? If it isÂ possible, it will require a hugeÂ effort of a large part of theÂ American people and the government of the States that are not wallowing in the same corruption. I’m looking at you California, Illinois, Michigan, New York, et al.
Â

The only way to get power back to the people isÂ to repeal the 16th Amendment which gave unlimited powers of taxation and borrowing to the federal government. Every family in America is in debt, a minimum, of a million dollars thanks to the corrupt bastards in the government.
Â
The 17th AmendmentÂ removedÂ StateÂ government representation at the federal level. It made the Senate a directlyÂ elected body, but the House of Representatives was already that. What the amendment did was give inordinate power to the political parties, their banker, corporateÂ and media bosses.
Â
Public law 62-5 which is where the House of Representatives limited themselves to 425 members instead ofÂ the 4,000 it should be today. You should be able to call your rep and talk to them, instead they are just part of theÂ elite.Â It takes only 300 corrupt people to change the entire country and that is the problem.
Â
Nevertheless, I doubt that it possible because theÂ American people are just as uneducated, propagandized and apathetic as the Germans were in 1933. I believe that we will sink deeper and deeper intoÂ tyranny.Â ThereÂ will be terrible poverty andÂ unimaginable wars, and as always,Â the rich will just get richer.Â

Mr. Lusk,
Do you really want even more corrupt state legislators electing senators?Â It is not perfect, but having senators accountable to you and I is much better than having senators that are only accountable to state level power brokers.Â The amendments to the Constitution are there for good reason and turning back the clock to 1789 is a recipe for disaster.Â

Mr. shogunole, you must be a “progressive” with the usual lack of knowledge of history and any understanding of the Constitution. That is why we are now a fascist nation run by crony capitalists with a debt of over a hundred trillion dollars and an real unemployment rate far beyond the last Great Depression.
Â
The 17th Amendment was addedÂ in1911Â for the express purpose of taking power away from State governments andÂ givingÂ it to theÂ “progressive” bankers, “power brokers” in the large corporations and the media.Â The whole point of having a Senate was toÂ give the sovereign States power at the federal level. If it is to be State “power brokers” then that is the concern of the people of the particular State and not the federal government.
Â
If you have not figured it out already we already have a body that is elected by the population at large and that is the house. That has also been corrupted byÂ same group at the same time.Â The reduced number of representatives makes it little different than theÂ Senate.Â Having the correct number of representatives, about 4,000 would make for more debate and more politicalÂ parties. It would alsoÂ make it much easier to communicate withÂ your rep as well asÂ it more expensive to bribe enough people. Â
Â
Now we have a just fewÂ people running the governmentÂ with no allegiance but to theÂ highest bidder, or haven’t you noticed?

Mr. Lusk,
Yes, I am a progressive; however, I am well aware of our nations history and the Constitution thank you very much.
Here are some of the reasons for the amendment from Findlaw.com: The ratification of this Amendment was the outcome of increasing popular dissatisfaction with the operation of the originally established method of electing Senators. As the franchise became exercisable by greater numbers of people, the belief became widespread that Senators ought to be popularly elected in the same manner as Representatives. Acceptance of this idea was fostered by the mounting accumulation of evidence of the practical disadvantages and malpractices attendant upon legislative selection, such as deadlocks within legislatures resulting in vacancies remaining unfilled for substantial intervals, the influencing of legislative selection by corrupt political organizations and special interest groups through purchase of legislative seats, and the neglect of duties by legislators as a consequence of protracted electoral contests.Given this, please answer this question.Â If the residents of a state like NY, with the most dysfunctional legislature in the country(the state senate was in disarray for a month), have the power to elect a US senator, how would it benefit them to give that power back to the state legislature?Â
This bears repeating:You and I have the POWER to elect a US senator in our respective states.Â How does it benefit you or I to give up that POWER to what is most likely a more corrupt legislative body?Â Repealing the 17th amendment makes no practical sense!
As for adding more representatives, that makes sense.Â Larry Sabato in his book also has some good suggestions on how to improve our constitution which make more sense than the repealing of the 17th amendment.
I agree with you that our govt needs fixing and that we have allowed our govt to be captured by special interests. Â Â
How to fix it without becoming fascist Spain or Italy back in the 1930’s is the $64,000 question that neither you nor I have the entire answer for.

Mr. Shogunole,
Â
I don’t trust politicians and if you have been paying attention recently or had an understanding of history you would not either. The United States is already a fascist country. I have no right to my own hard earned income, my land, money, healthcare, student loans, retirement, etc. IÂ pay massive amounts of taxesÂ but have zero say in how it is spent.Â The government takes from me and gives it toÂ billionaires and paysÂ single women to have children. My savings and retirement are inflated to nothing by the governmentÂ for their billionaire handlers own benefit. I am forced to pay for your stupidity and incompetence as a voter in California, New York, Michigan, New Jersey, etc., etc. You should not have to pay for mine.
Â
I want a piece of paper that empowers me, my community and my State, because I don’t trust your State and certainly NOT the 537 politicians at the federal level.Â I want a piece of paper that precisely defines the limits of the Federal government.
Â
Repealing bad amendments is a much easier process than creating bad new ones. I also do not wantÂ so-called progressives to have an opportunity to cause more damageÂ because you are the ones that have created the fascistÂ government that has taken away so many of my liberties. Progressives have created the hive, the vast government dependent underclass to keep them in power and itÂ is evil. What you think is for theÂ good of the hive is not Â goodÂ for an educated self reliant populous and that is why you maintain, even glorify, government dependence and dumbed-down education.
Â

“The urge to save humanity is almost always a false front for the urge to rule.” – H. L. Menken

I share your anger regarding our state of affairs in more ways than one and I do not trust our politicians.Â However, progressives are not the cause of all of our ills.Â Deregulation is a conservative idea and our affairs have been dominated by conservative thinking since Regan.Â The right is just as responsible for our troubles as the left in this case.

That said, a few comments on your post:

1)Â Â You mentioned that the US is already a fascist country.Â We’re close, but not there yet.Â When DHS or the FBI knocks on my door or yours because of our beliefs we’ll have arrived.Â GWB and the republican congress created the Patriot Act, Patriot Act II( not enacted) and the military commissions act.Â If you read the fine print, you’ll see that these laws eroded our civil liberties in addition to making it easier to fight terrorists.

2) You say you do not want to pay for my stupidity as a resident of a different state than yours and you don’t want me paying for yours.Â However, if I do something as a resident of my state that will benefit you as well, wouldn’t you want to have access to that?

3) You also mention the following:
“I want a piece of paper that empowers me, my community and my State, because I donâ€™t trust your State and certainly NOT the 537 politicians at the federal level.Â I want a piece of paper that precisely defines the limits of the Federal government. “Â You imply that we should return to being a loose confederation of states. Originally, The Constitution was constructed because the Articles of Confederation did not work.Â Â Â That proved to be unworkable in 1789 and it is now.Â In addition, the civil war was fought in large part because the south viewed the United States as a union of individual states instead of a singular nation. We simply could not govern ourselves as a union of individual states and blood was spilled because of it.Â Why should that notion work now? The US would not be the superpower that it is had we kept the notion of our country as a group of 50 individual states instead of one nation.

Lastly, your assumption that we can exist as totally independent entities and still function as a strong, coherent community, in my opinion, does not hold.Â Ask any football coach about that( Maybe you are one yourself).Â Humans are social creatures by nature and our survival ultimately depends on how well we are connected to our communities. Why, because power is thwarted only by more power andÂ size (# community members)+ efficiency(level of connectedness) determines power.Â Technology has allowed us to survive as lone actors, but if the SHTF, that will no longer be the case.Â

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